Home construction of your own house is something very personal and dear to an individual, whether it be basement addition, a new room, or something as specific as Helical Piers. We all dream and plan on getting our home construct at some point in life. However, constructing a home is not a simple or easy task. On one hand, we need a lot of capital while on the other hand home construction needs you effort including attention and time. So whenever you plan to construct your home keep these point in mind. In this piece of writing, we are going to discuss the first issue involved in the construction of homes i-e the financing of construction costs.

Although saving is the best option to pay for the construction costs. However, this option is time-consuming and if you are planning to have a home of your own in near future then the best possible option is to have the construction loan from the lender. The lender in this regard could be a banker or any financing company.

The construction loans offer by the lending companies vary from that of home loans. The main difference between the two is that in the home loan you make a down payment. Then take the possession of the house and after that, you pay the installments on the monthly basis. While on the other hand when the construction loan applied, the banker asks for the estimation of the property to decide the amount of the loan to be lend. The property for which the loan is required has yet to be built.

The risk involves while lending for the home is far greater than the traditional home loan so the banker or the lending company has to be extra cautious. The construction loan is basically a reimbursement process. The bank will only lend you the funds for the completed task. Every month you require submitting the draw request along with the documents. The bank will review the request along with the documentary proof. Moreover, a third party independent investigator inspect the building and the construction work and confirm the progress. Only then the bank issue the next reimbursement.

Elements of construction loan

The three main elements that are of great importance for a construction loan includes a construction budget, appraisal value and construction loan amount.

  • The construction budget:

It is the most significant document associated with the construction loan. It contains all the cost associated with constructing homes.

  • The appraisal value:

It is the total estimate of the house after completion.

  • Construction loan amount:

The loan amount consists of the equity value along with the down payment.

  • Types of construction loan:

There are basically two types of construction loans available in the market.

  • A short-term loan:

Basically, a short-term loan is something that does not convert into the permanent financing automatically. The drawback of this kind of loan is that you have to pay another payment set and the interest at that time could be higher.

  • Construction of permanent loan:

Such loan allows you to buy a land and then build a house on it. After the completion of the house, the loan roll into a permanent finance.

How to get finance?

The process of getting qualify for the loan stumbled upon three basic step of loan process the budgeting, appraisal and the sanctioning of the loan.

  • Pre-qualification:

Before starting to budget the whole cost involved in the construction it would be advisable to pass the pre-qualification stage. The prequalification required a professional and answer to some of the questions. The questions asked by the lender agent comprise of your financial health and the equity of the home you are constructing. If you answer the questions in detail and to the satisfaction level you will be qualified for the next stage of the loan.

  • Loan budget:

Then comes the next stage of the lending process. At this stage you have to set the budget you will be requiring for the construction of the home. It includes all costs involved in the whole construction process.

You have to include all cost regardless of the stage at which they are going to incur in order to have the complete estimation regarding the amount of loan are going to require. The costs include the cost of the land purchased, soft costs like permits, site plans etc and the hard costs i-e the actual cost of building a home.

Moreover, you would also need a little bit of reserve fund for the contingency situations. These reserve fund will act as a cushion for as well as for the lender. Along with the reserve fund, you are going to be charged with the fees to complete the whole process of loan or mortgage.

Dreaming to construct a home of your own is not something entirely impossible. However, it may take effort, dedication and financial help to fulfill. So if you are planning to construct a house then go for your appraisal forts to have the idea regarding the total cost and value involved.

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